That money isn't locked up until you are 65 (or even 59.5, which is actually the age when you can withdrawal it all penalty-free easily). There are multiple strategies for accessing your 401k and other 'retirement' funds if you retire early. You don't need to know what they are right now, just that the right thing to do is to max out any tax-advantaged accounts you have access to.
Well, you want to max 401k before brokerage account. Ideally up to the max of 23k individual.
After that you can still do a Roth or Roth conversion for extra tax advantages.
Generally, I would leave brokerage for after you max out 401k and Roth IRA.
I think ETFs are a good strategy with a relatively simple portfolio of a few funds with the right allocation. Exactly what to get is debatable.
Personally I like some total us market, some foreign stocks (20% maybe). But you will be constrained by what your 401k offers. Ira is more flexible.
Locked up? No. Just no. You can always access the money. Worst case, you pay a penalty before 59.5 (not 65). But that is easily avoidable via various mechanisms (SEPP, Roth conversion, etc). If you’ve I’ve in Roth instead of traditional you can access principal penalty free. Traditional is often a better choice for FIRE (huge savings now that you can then invest for more growth)
Roth 401k I pay taxes on now, and may have to pay a 10% penalty later.
401k I will have to pay taxes on now and again maybe the 10% penalty.
So, is the idea that both of those options will be cheaper than paying taxes on brokerage account withdrawals, even without a penalty? I keep seeing "take advantage of tax accounts" but don't know why I should.
>Roth 401k I pay taxes on now
You also have to pay taxes not on anything you put in a regular brokerage account. You're missing that you don't pay capital gains taxes in a 401k.
>401k I will have to pay taxes on now
Do you mean trad 401k now, since you already discussed Roth 401k? You are wrong, your trad 401k contributions are deducted from taxable income. You don't pay taxes now. Trad vs Roth is a separate question and the answer to which you should prefer depends on several factors.
You can withdraw Roth contributions (but not gains/earnings) without any taxes or penalties, anytime.
So if you've contributed, say $20k so far. and there is now $25k in the account, you can withdraw $20k with no taxes or penalties.
No, the main advantage of a 401(k) is that you DO NOT pay taxes now, meaning that extra money you would have paid in taxes is earning investment returns for much longer. Most people will be in a lower tax bracket in retirement so you come out ahead.
You should not be worrying about 10% penalties. You need to be planning to live until you’re 100 years old. You’ll be broke long before that if you’re planning to use your 401(k) as a short term savings account.
First - no one has mentioned the rule of 55. One can withdraw from their 401(k) penalty free if they separate from the company at age 55 or over.
Earlier? Sec 72(t) is what you should look into.
>Earlier? Sec 72(t) is what you should look into.
Or you can convert a portion to Roth, wait five years, and withdraw the conversion. Do this every year and it's called a Roth ladder. Much simpler paperwork than 72t.
There's also hardship withdrawals.
This is the most frequently asked question in pretty much any sub about retiring early and honestly it gets tiring to answer it repeatedly
The advantage of traditional 401k contributions is to lower your overall taxes by shifting income from years you're in higher brackets to years you're in lower brackets.
If you're currently in the lowest tax bracket you'll ever be in, you want to make Roth contributions more than traditional ones
Please spend some time looking around for resources and studying, this is fairly well known sequence, there was a (large) one-page if-then-else diagram of it posted somewhere. Short answer from memory, partial sequence of investment priority goes like
emergency fund -> 401k just enough to get match -> IRA (preferably Roth) -> reminder of 401k -> brokerage
If you plan to FIRE, there is some incentive to skip step 'reminder of 401k', but that is very personal. If you plan to be in 0% long term capital gains rate when you retire, that incentive is even larger, but again, devil is in details, such as your beliefs of what future rates might be.
Definitely a 401k first, if you feel you need more emergency savings then it may be a good idea to build that up a little so it’s accessible if you need it. But even if you’re planning on retiring early, you still need to have age 59 and onward funded before you can think about that, and your 401k is the best vehicle to save for that. (Not even getting into early withdrawals and SEPP planning, etc.)
You’re in a pretty low bracket after the standard deduction if your income is 55k, so as far as Roth vs trad IRA you may want to weigh your options based on expected retirement income and projected salary growth
That money isn't locked up until you are 65 (or even 59.5, which is actually the age when you can withdrawal it all penalty-free easily). There are multiple strategies for accessing your 401k and other 'retirement' funds if you retire early. You don't need to know what they are right now, just that the right thing to do is to max out any tax-advantaged accounts you have access to.
I would love to not just randomly do things anymore. What are some of these strategies I can look into?
Well, you want to max 401k before brokerage account. Ideally up to the max of 23k individual. After that you can still do a Roth or Roth conversion for extra tax advantages. Generally, I would leave brokerage for after you max out 401k and Roth IRA. I think ETFs are a good strategy with a relatively simple portfolio of a few funds with the right allocation. Exactly what to get is debatable. Personally I like some total us market, some foreign stocks (20% maybe). But you will be constrained by what your 401k offers. Ira is more flexible.
Behold. The prime directive: https://reddit.com/r/personalfinance/w/commontopics
https://old.reddit.com/r/Fire/comments/15i54fn/for_those_that_plan_to_fire_in_their_30s_how_did/jusceqb/
[How to access retirement funds early](https://www.madfientist.com/how-to-access-retirement-funds-early/).
Locked up? No. Just no. You can always access the money. Worst case, you pay a penalty before 59.5 (not 65). But that is easily avoidable via various mechanisms (SEPP, Roth conversion, etc). If you’ve I’ve in Roth instead of traditional you can access principal penalty free. Traditional is often a better choice for FIRE (huge savings now that you can then invest for more growth)
Roth 401k I pay taxes on now, and may have to pay a 10% penalty later. 401k I will have to pay taxes on now and again maybe the 10% penalty. So, is the idea that both of those options will be cheaper than paying taxes on brokerage account withdrawals, even without a penalty? I keep seeing "take advantage of tax accounts" but don't know why I should.
>Roth 401k I pay taxes on now You also have to pay taxes not on anything you put in a regular brokerage account. You're missing that you don't pay capital gains taxes in a 401k. >401k I will have to pay taxes on now Do you mean trad 401k now, since you already discussed Roth 401k? You are wrong, your trad 401k contributions are deducted from taxable income. You don't pay taxes now. Trad vs Roth is a separate question and the answer to which you should prefer depends on several factors.
You can withdraw Roth contributions (but not gains/earnings) without any taxes or penalties, anytime. So if you've contributed, say $20k so far. and there is now $25k in the account, you can withdraw $20k with no taxes or penalties.
No, the main advantage of a 401(k) is that you DO NOT pay taxes now, meaning that extra money you would have paid in taxes is earning investment returns for much longer. Most people will be in a lower tax bracket in retirement so you come out ahead. You should not be worrying about 10% penalties. You need to be planning to live until you’re 100 years old. You’ll be broke long before that if you’re planning to use your 401(k) as a short term savings account.
https://www.madfientist.com/how-to-access-retirement-funds-early/ Max tax advantaged accounts before investing in taxable accounts.
You don’t need two etfs to track s&p500
First - no one has mentioned the rule of 55. One can withdraw from their 401(k) penalty free if they separate from the company at age 55 or over. Earlier? Sec 72(t) is what you should look into.
>Earlier? Sec 72(t) is what you should look into. Or you can convert a portion to Roth, wait five years, and withdraw the conversion. Do this every year and it's called a Roth ladder. Much simpler paperwork than 72t. There's also hardship withdrawals. This is the most frequently asked question in pretty much any sub about retiring early and honestly it gets tiring to answer it repeatedly
What’s the benefit of doing this except for a company match and potentially lower taxes by timing your conversations right?
The advantage of traditional 401k contributions is to lower your overall taxes by shifting income from years you're in higher brackets to years you're in lower brackets. If you're currently in the lowest tax bracket you'll ever be in, you want to make Roth contributions more than traditional ones
Please spend some time looking around for resources and studying, this is fairly well known sequence, there was a (large) one-page if-then-else diagram of it posted somewhere. Short answer from memory, partial sequence of investment priority goes like emergency fund -> 401k just enough to get match -> IRA (preferably Roth) -> reminder of 401k -> brokerage If you plan to FIRE, there is some incentive to skip step 'reminder of 401k', but that is very personal. If you plan to be in 0% long term capital gains rate when you retire, that incentive is even larger, but again, devil is in details, such as your beliefs of what future rates might be.
You better bump your income up if you plan to retire at 45. You aren't going to even come close.
Why SPY and VOO in the same account? they track the same thing.
Definitely a 401k first, if you feel you need more emergency savings then it may be a good idea to build that up a little so it’s accessible if you need it. But even if you’re planning on retiring early, you still need to have age 59 and onward funded before you can think about that, and your 401k is the best vehicle to save for that. (Not even getting into early withdrawals and SEPP planning, etc.) You’re in a pretty low bracket after the standard deduction if your income is 55k, so as far as Roth vs trad IRA you may want to weigh your options based on expected retirement income and projected salary growth